Thousands of Americans expecting to keep their homes after starting trial modifications on troubled mortgages could wind up in foreclosure anyway, thanks to a murky technicality known as the investor-based denial.

Since launching its Home Affordable Modification Program (HAMP) last year, the government has buried in the fine print that not all 60-day delinquent loans are eligible — and one major exclusion is investor contracts that preclude modification.

Desperate homeowners trying to keep a roof over their heads often have no idea that the company to which they send loan payments is only a middle man who services the loan, and not the ultimate decider of their fate. In many cases, a shadowy investor or group of investors actually owns the debt.

And that’s where the trouble comes in. These investors can put the kibosh on converting a trial modification to a permanent deal, without the homeowner even knowing the investor’s identity or reason for rejecting the workout.

Many homeowners undertake trial modifications — with a reduction in monthly loan payments — only to be told months later that they can’t convert to a permanent modification because the investor won’t allow it and they now owe thousands in back payments. Many homeowners are getting incorrect information from the servicer, attorneys and advocates say.

“A lot of times there are no restrictions, and if there is one, it is usually limited [and] does not prevent the servicer from modifying under HAMP,” says Margot Albert, staff attorney with Staten Island Legal Services. “[Servicers are] using any investor restriction as an excuse not to modify loans, even if there is another way under HAMP. . .”

Asked about this issue, a spokeswoman for Wells Fargo, which boasts that its mortgage unit services one of every six US mortgage loans, blamed the wide variety of contracts for securitized pools of loans.

Thousands of New York-area families are at the mercy of the servicers and investors who call the shots on HAMP — with little oversight or accountability.

The New York-metro area has the second-highest level of HAMP activity in the nation, with 40,425 active trials and 16,672 permanent modifications.

With only 295,348 active permanent modifications through April 2010, however, HAMP has been a major flop for the families behind the 3.3 million eligible loans. Servicers and banks, meanwhile, are raking in the fees from Uncle Sam that fund HAMP.

Consumer advocates and attorneys who work with homeowners say investor-based denials — across the spectrum of loan servicers — are a growing problem in the New York area and nationwide. Attorneys from most of the 27 states in the Institute for Foreclosure Legal Assistance report a problematic lack of information behind investor-based denials, said Ellen Taverna, Legislative Associate at the National Association of Consumer Advocates, which manages the program.

Locally, Natalie Reyes, 38, fears she will lose her home after getting a confusing investor-based denial. Reyes bought a modest two-bedroom house in 2006, moving her twin daughters from a rough-and-tumble Brooklyn to Staten Island and a better shot in life.

Reyes scaled her real estate dreams to fit her budget as a single mom and New York City employee. But when an FHA loan at 4.25 percent fell through just days before her closing, she believed a smooth-talking broker who promised easy refinancing on an adjustable-rate mortgage. Rather than lose her deposit and the house, she took an ARM at 7.625 percent.

When that mortgage reset in February 2009, Reyes fell behind and contacted the loan servicer Wells Fargo to work out a deal. Months of calls and reams of documents finally yielded a trial modification last September, and Reyes breathed a sigh of relief.

By completing three trial payments and submitting the appropriate paperwork, Reyes expected her loan would then convert to a permanent modification, as outlined in HAMP guidelines.

Instead, she got the shocking news that her modification was denied. Reyes then spent her sleepless nights scouring the Internet for help, and filed a complaint with the Office of the Comptroller of the Currency. That yielded a letter from Wells Fargo in February stating that her modification had been rejected because “the investor’s guidelines would not provide for a permanent HAMP modification.”

Reyes had no idea what exactly the investor’s contract stipulated, or even who the investor was. She’s still trying to find out. Reyes continues to make the payments agreed to in her trial modification, and has turned to Staten Island Legal Services for help.

“Hopefully Wells Fargo [and] whoever is making this decision gets to know that behind this loan number there are people, struggling people putting all their efforts and savings on the line,” said Reyes. “If I lose my house I’m walking out with nothing, and hopefully they realize this.”

A Wells Fargo spokeswoman said, “While we make every attempt — within the confines of investor requirements — to develop individualized workout options that help customers get through a difficult time, when a modification is limited by these contracts, loan servicers must follow these guidelines even if it means the borrower will not get a HAMP modification.”

Uphill battle

Natalie Reyes — trying for a better life for her young daughters — fears she will lose her home after receiving an investor rejection to her mortgage modification.

The metro area is the second-highest level of HAMP loans in the nation.